scholarly journals Fiscal Unions

2017 ◽  
Vol 107 (12) ◽  
pp. 3788-3834 ◽  
Author(s):  
Emmanuel Farhi ◽  
Iván Werning
Keyword(s):  
Financial Markets ◽  
Open Economy ◽  
Risk Sharing ◽  
Capital Controls ◽  
Currency Union ◽  
Country Risk ◽  
Currency Unions ◽  
Fiscal Union ◽  
Cross Country ◽  
Optimal Risk Sharing

We study cross-country risk sharing as a second-best problem for members of a currency union using an open economy model with nominal rigidities and provide two key results. First, we show that if financial markets are incomplete, the value of gaining access to any given level of aggregate risk sharing is greater for countries that are members of a currency union. Second, we show that even if financial markets are complete, privately optimal risk sharing is constrained inefficient. A role emerges for government intervention in risk sharing both to guarantee its existence and to influence its operation. The constrained efficient risk-sharing arrangement can be implemented by contingent transfers within a fiscal union. We find that the benefits of such a fiscal union are larger, the more asymmetric the shocks affecting the members of the currency union, the more persistent these shocks, and the less open the member economies. Finally, we compare the performance of fiscal unions and of other macroeconomic stabilization instruments available in currency unions such as capital controls, government spending, fiscal deficits, and redistribution. (JEL E62, F31, F32, F41, F45)

Modeling Country-Specific Risks in Foreign investment Using an Expert-Driven System

2003 ◽  
Vol 4 (1) ◽  
pp. 105-123
Author(s):  
Aboubaker Seddik Meziani
Keyword(s):  
Financial Markets ◽  
Foreign Investment ◽  
Capital Controls ◽  
Country Risk ◽  
Analytic Hierarchy ◽  
Breach Of Contract ◽  
National Market ◽  
Driven System ◽  
Hierarchy Process ◽  
Country Specific

Assuming that regulatory obstacles such as capital controls, breach of contract, and other market imperfections are still predominant even in today’s increasingly integrated financial markets, this study demonstrates application of the analytic hierarchy process (AHP) to effectively assess country-specific risks to cross-border investments. The AHP is an expert-driven system that has been applied to numerous fields but has yet to be applied to the assessment and management of country-risk exposure. This study shows that it is also capable of selecting an optimal host country (OHC) for a foreign investment, herein a national market where country-specific risks are least likely to adversely affect its return.

scholarly journals International Macroeconomics With Imperfect Financial Markets

2021 ◽  
Author(s):  
Matteo Maggiori
Keyword(s):  
Financial Markets ◽  
Open Economy ◽  
Risk Sharing ◽  
International Macroeconomics ◽  
Quantitative Easing ◽  
Carry Trade ◽  
International Risk Sharing ◽  
Modeling Tools ◽  
The Impact ◽  
Exchange Rate Disconnect

A review of recent advances in open economy analysis under segmented international financial markets. A set of modeling tools that have been used to understand ?financialcrises, the ensuing policy response (e.g., Quantitative Easing and FX intervention), deviations from arbitrage (CIP deviations), and more generally the impact of capital flows on exchange rates. This modeling approach has also sheds a different light onclassic topics such as the exchange rate disconnect, international risk sharing, UIPfailures, and the carry trade.

Financial Intermediation and Growth: Theory and Some Cross-Country Evidence

1997 ◽  
Vol 36 (4II) ◽  
pp. 855-862
Author(s):  
Tayyeb Shabir
Keyword(s):  
Economic Growth ◽  
Financial Markets ◽  
Financial Intermediation ◽  
Empirical Estimates ◽  
Financial Liberalisation ◽  
Cross Country ◽  
Level Of Significance ◽  
The Relationship ◽  
Positive Effect ◽  
Theoretical Developments

Well-functioning financial markets can have a positive effect on economic growth by facilitating savings and more efficient allocation of capital. This paper characterises some of the recent theoretical developments that analyse the relationship between financial intermediation and economic growth and presents empirical estimates based on a model of the linkage between financially intermediated investment and growth for two separate groups of countries, developing and advanced. Empirical estimates for both groups suggest that financial intermediation through the efficiency of investment leads to a higher rate of growth per capita. The relevant coefficient estimates show a higher level of significance for the developing countries. This financial liberalisation in the form of deregulation and establishment and development of stock markets can be expected to lead to enhanced economic growth.

scholarly journals International Liquidity and Exchange Rate Dynamics *

2015 ◽  
Vol 130 (3) ◽  
pp. 1369-1420 ◽  
Author(s):  
Xavier Gabaix ◽  
Matteo Maggiori
Keyword(s):  
Exchange Rate ◽  
Financial Markets ◽  
Exchange Rates ◽  
Capital Flows ◽  
Risk Sharing ◽  
Market Model ◽  
International Liquidity ◽  
Balance Sheets ◽  
Macroeconomic Analysis ◽  
International Pricing

Abstract We provide a theory of the determination of exchange rates based on capital flows in imperfect financial markets. Capital flows drive exchange rates by altering the balance sheets of financiers that bear the risks resulting from international imbalances in the demand for financial assets. Such alterations to their balance sheets cause financiers to change their required compensation for holding currency risk, thus affecting both the level and volatility of exchange rates. Our theory of exchange rate determination in imperfect financial markets not only helps rationalize the empirical disconnect between exchange rates and traditional macroeconomic fundamentals, it also has real consequences for output and risk sharing. Exchange rates are sensitive to imbalances in financial markets and seldom perform the shock absorption role that is central to traditional theoretical macroeconomic analysis. Our framework is flexible; it accommodates a number of important modeling features within an imperfect financial market model, such as nontradables, production, money, sticky prices or wages, various forms of international pricing-to-market, and unemployment.

scholarly journals Welfare Reversals in a Monetary Union

2014 ◽  
Vol 6 (4) ◽  
pp. 246-290 ◽  
Author(s):  
Stéphane Auray ◽  
Aurélien Eyquem
Keyword(s):  
Financial Markets ◽  
Monetary Union ◽  
Risk Sharing ◽  
Home Bias ◽  
Scale Model ◽  
Fiscal Policies ◽  
Medium Scale ◽  
Asymmetric Shocks ◽  
Inflation Rates ◽  
Carry Over

We show that welfare can be lower under complete financial markets than under autarky in a monetary union with home bias, sticky prices, and asymmetric shocks. Such a monetary union is a second-best environment in which the structure of financial markets affects risk-sharing but also shapes the dynamics of inflation rates and the welfare costs from nominal rigidities. Welfare reversals arise for a variety of empirically plausible degrees of price stickiness when the Marshall-Lerner condition is met. These results carry over a model with active fiscal policies, and hold within a medium-scale model, although to a weaker extent. (JEL E31, E52, E62, F33, F41)

The imf Conditionality in the Age of Post-National Governance

2021 ◽  
pp. 1-27
Author(s):  
Vojtěch Belling ◽  
Lukáš Kollert ◽  
Martin Vojta
Keyword(s):  
Member State ◽  
Program Design ◽  
Currency Union ◽  
Currency Unions ◽  
Monetary Unions ◽  
Executive Board ◽  
Member States ◽  
Board Decision ◽  
Supranational Institutions ◽  
The Imf

Abstract The paper focuses on conditionality in imf programs for member states of monetary unions in light of the decision of the imf’s Executive Board on Program Design in Currency Unions (2018). Despite the growing importance of supranational institutions, the imf lacked until 2018 any explicit framework for imposing conditions on currency union bodies in cases where a member state of such a union requested an imf program. The aim of this paper is to assess the newly adopted imf approach to conditionality for currency union institutions based on the concept of “policy assurances” and to answer the question of whether the imf had authority to impose conditions on supranational institutions prior to the 2018 Board decision and whether the imf should in principle have such authority.

scholarly journals Banks, Financial Markets and International Consumption Risk Sharing

2012 ◽  
Vol 13 (3) ◽  
pp. 331-351 ◽  
Author(s):  
Markus Leibrecht ◽  
Johann Scharler
Keyword(s):  
Financial Markets ◽  
Risk Sharing ◽  
Banking Sector ◽  
Financial System ◽  
International Diversification ◽  
Oecd Countries ◽  
Idiosyncratic Risk ◽  
Per Se ◽  
Consumption Risk

Abstract In this article, we explore how characteristics of the domestic financial system influence the international allocation of consumption risk in a sample of OECD countries. Our results show that the extent of risk sharing achieved does not depend on the overall development of the domestic financial system per se. Rather, it depends on how the financial system is organized. Countries characterized by developed financial markets are less exposed to idiosyncratic risk, whereas the development of the banking sector contributes little to the international diversification of consumption risk.

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